Crisis facilitates policy change, not liberalization

2016 ◽  
Vol 8 (2) ◽  
pp. 248-267 ◽  
Author(s):  
Marshall L. Stocker
Keyword(s):  
Economic Policy ◽  
Policy Change ◽  
Capital Market ◽  
Fixed Effects ◽  
Economic Freedom ◽  
Equity Market ◽  
Market Returns ◽  
Content Type ◽  
Market Sentiment ◽  
Crisis Events

Purpose Crisis events are windows of opportunity during which a country’s leaders may implement economic policy adjustments which change that country’s level of economic freedom and affect the local capital market. This paper aims to investigate the relationship between annual changes in an economic freedom index, six types of crises and equity market returns. Design/methodology/approach The author uses fixed-effects regressions on annual panel data for 69 countries during the period 2000-2010. Findings Banking, domestic debt and inflation crises decrease economic freedom, and an external debt crisis weakly relates to increases in economic freedom. Only banking crises relate to a change in economic freedom in the following year, suggesting that crisis-driven changes in economic freedom happen quickly. Gains in economic freedom are more likely to occur during periods of positive local and global equity returns. Preceding and contemporaneous to increases in economic freedom, a country’s equity market outperforms a global equity index, offering observers a leading indicator for economic policy change. Originality/value The author finds that crises coincide with decreases in economic freedom, while gains in economic freedom happen during periods of positive capital market sentiment. The absence of a relationship between one-year lagged crisis events and changes in economic freedom suggests prior research relating gains in economic freedom to a crisis occurring 5 or 10 years earlier is a relationship which is more complex, non-linear and specific to the selected data period or spurious. Furthermore, relative equity market returns are related to changes in economic freedom, suggesting that equity markets identify which countries have increased economic freedom, long before popular economic freedom indexes are published.

Diversification strategies and equity market performances

2019 ◽  
Vol 29 (3) ◽  
pp. 207-225 ◽  
Author(s):  
Burhan F. Yavas ◽  
Kathleen Grave ◽  
Demosthenes Vardiabasis
Keyword(s):  
Capital Markets ◽  
Capital Market ◽  
Direct Investment ◽  
Multinational Enterprises ◽  
Equity Market ◽  
Strategic Decision ◽  
Target Market ◽  
Risk And Uncertainty ◽  
Market Returns ◽  
Content Type

Purpose This paper aims to investigate the linkages among foreign direct investment (FDI – greenfield and mergers and acquisitions [M&A]) decisions and equity market returns and volatilities. The main premise is that FDI decisions by multinational enterprises (MNE) are influenced by risk and uncertainty indicated by equity market returns and volatilities in the destination (host) countries. This is so because the events on the stock markets in general and their volatilities in particular signal the vitality of the investment climate of the target market. Understanding volatility in capital markets is important for determining the cost of capital and for evaluating direct investment and asset allocation decisions. Design/methodology/approach Surveys and structured interviews were conducted with senior managers of 11 MNEs based in the USA to collect the data used in this study from November 2017 to October 2018. The paper investigates if FDI decisions of the MNE managers are influenced by risk and uncertainty indicated by equity market returns and volatilities. The paper endeavors to make a contribution to the IB literature in highlighting the role played by equity returns and volatilities in FDI decisions and therewith attempts to integrate finance (capital markets) with international business/strategic decision-making. Findings Capital market performances (returns and volatilities) were found to influence the country choice for location of production facilities (FDI – both greenfield and M&A decisions) as well as timing of the FDI by a MNE. In other words, the share of production capacity optimally located abroad and M&A activities are affected by capital market returns and volatilities.

Impact of volatility and equity market uncertainty on herd behaviour: evidence from UK REITs

2018 ◽  
Vol 11 (2) ◽  
pp. 169-186 ◽  
Author(s):  
Omokolade Akinsomi ◽  
Yener Coskun ◽  
Rangan Gupta ◽  
Chi Keung Marco Lau
Keyword(s):  
Asset Allocation ◽  
Regime Switching ◽  
Stock Exchange ◽  
Equity Market ◽  
Market Uncertainty ◽  
Content Type ◽  
Regime Switching Model ◽  
Switching Model ◽  
Market Sentiment ◽  
The Impact

PurposeThis paper aims to examine herding behaviour among investors and traders in UK-listed Real Estate Investment Trusts (REITs) within three market regimes (low, high and extreme volatility periods) from the period June 2004 to April 2016.Design/methodology/approachObservations of investors in 36 REITs that trade on the London Stock Exchange as at April 2016 were used to analyse herding behaviour among investors and traders of shares of UK REITs, using a Markov regime-switching model.FindingsAlthough a static herding model rejects the existence of herding in REITs markets, estimates from the regime-switching model reveal substantial evidence of herding behaviour within the low volatility regime. Most interestingly, the authors observed a shift from anti-herding behaviour within the high volatility regime to herding behaviour within the low volatility regime, with this having been caused by the FTSE 100 Volatility Index (UK VIX).Originality/valueThe results have various implications for decisions regarding asset allocation, diversification and value management within UK REITs. Market participants and analysts may consider that collective movements and market sentiment/psychology are determinative factors of risk-return in UK REITs. In addition, general uncertainty in the equity market, proxied by the impact of the UK VIX, may also provide a signal for increasing herding-related risks among UK REITs.

Small investors’ internet sentiment and return predictability

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Antti Klemola
Keyword(s):  
Investor Sentiment ◽  
Equity Market ◽  
Individual Investors ◽  
Linear Regression Models ◽  
Internet Search ◽  
Search Activity ◽  
Market Returns ◽  
Content Type ◽  
Vector Autoregressive ◽  
Bear Market

Purpose The purpose of this paper is to propose a novel and new direct measurement of small investor sentiment in the equity market. The sentiment is based on the individual investors’ internet search activity. Design/methodology/approach The author measures unexpected changes in the small investor sentiment with AR (1) process, where the residuals capture the unexpected changes in small investor sentiment. The author employs vector autoregressive, Granger causality and linear regression models to estimate the association between the unexpected changes in small investor sentiment and future equity market returns. Findings An unexpected increase in the search popularity of the term bear market is negatively associated with the following week’s equity market returns. An unexpected increase in the spread (the difference in popularities between a bull market and a bear market) is positively associated with the following week’s equity market returns. The author finds that these effects are stronger for small-sized companies. Originality/value By author’s knowledge, the paper is the first that measures the small investor sentiment that is based on the internet search activity for keywords used in the American Association of Individual Investor’s (AAII) survey questions. The paper proposes an alternative small investor sentiment measure that captures the changes in small investor sentiment in more timely fashion than the AAII survey.

Do firms adjust board gender diversity in response to economic policy uncertainty?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Seksak Jumreornvong ◽  
Sirimon Treepong karuna ◽  
Shenghui Tong ◽  
Pornsit Jiraporn
Keyword(s):  
Economic Policy ◽  
Fixed Effects ◽  
Terrorist Attack ◽  
Gender Diversity ◽  
Shareholder Wealth ◽  
Policy Uncertainty ◽  
Exogenous Shock ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Board Gender Diversity

Purpose This paper aims to explore the effect of economic policy uncertainty (EPU) on board gender diversity. Prior research shows that female directors play a beneficial role. The advantage of board gender diversity should be particularly helpful when firms have to navigate an uncertain environment. So the authors hypothesize that firms adjust their board gender diversity in response to EPU. Design/methodology/approach The authors execute a regression analysis. To minimize endogeneity, the authors execute firm-fixed effects regressions, an instrumental variable (IV) analysis and propensity score matching. Findings Consistent with their hypothesis, the authors find that firms significantly raise board gender diversity in response to EPU. To draw a causal inference, the authors exploit the 9/11 terrorist attack as an exogenous shock that elevated EPU unexpectedly. The authors’ IV analysis corroborates the results. Finally, the authors show that board gender diversity substantially mitigates the adverse effect on shareholder wealth brought about by an unanticipated negative shock attributed to the 9/11 attack. Originality/value According to the authors’ knowledge, this study is the first to investigate the effect of EPU on board gender diversity. This research contributes to two important areas of the literature, i.e. board gender diversity and EPU. The authors show that board gender diversity is beneficial and firms act accordingly when facing more economic uncertainty.

U.S. State Government policies and entrepreneurship

2015 ◽  
Vol 4 (1) ◽  
pp. 102-110 ◽  
Author(s):  
Dmitriy Krichevskiy ◽  
Thomas Snyder
Keyword(s):  
Fixed Effects ◽  
Economic Freedom ◽  
Government Policies ◽  
Entrepreneurial Activity ◽  
Tax Burden ◽  
Fixed Effects Model ◽  
Entry Rate ◽  
Content Type ◽  
Fraser Institute ◽  
State And Local

Purpose – The purpose of this paper is to test the effects of government policies on entrepreneurial activity within the 50 US states. Design/methodology/approach – Using panel data and a fixed-effects model, the authors examine the determinants of the nominal establishment entry rate, the nominal establishment exit rate, and the net establishment entry rate. To measure government policy, the authors use the Economic Freedom of North America (EFNA) index published by the Fraser Institute. The authors use both the overall index and its components. The authors also use the state and local tax burden published by the Tax Foundation. Findings – The authors find that a smaller government is associated with a net increase in business establishments. A freer labor market is also associated with a net increase in business establishments. However, the relationship between the tax burden and entrepreneurship is more complex. Using a measurement of the tax burden from the Fraser Institute, the authors find that an increase in taxes is associated with a net decrease in businesses, but the measurement from the Tax Foundation suggests that an increase in taxes is associated with a net increase in businesses. Research limitations/implications – The results can help policy makers recognize the effects of expenditure and regulation on business formation. Practical implications – However, the results do not send a clear message on the effects of taxes on entrepreneurship. Originality/value – The contribution to the literature is the examination of the effect of the components economic freedom on net business entry in the USA, along with comparing the effects of two measurements of tax burden on net business entry.

scholarly journals Culture, corporate governance and analysts forecast in Malaysia

2015 ◽  
Vol 23 (3) ◽  
pp. 232-255 ◽  
Author(s):  
Effiezal Aswadi Abdul Wahab ◽  
Anwar Allah Pitchay ◽  
Ruhani Ali
Keyword(s):  
Corporate Governance ◽  
Cultural Values ◽  
Capital Market ◽  
Fixed Effects ◽  
Forecast Error ◽  
Least Square ◽  
Data Availability ◽  
Content Type ◽  
The Relationship ◽  
Estimate System

Purpose – The purpose of this paper is to examine the relationship between Bumiputra (in reference to Malay indigenous race) directors, a proxy for culture and analysts forecast. In addition, the study investigates whether corporate governance affects that relationship. Design/methodology/approach – The sample of this study is based on 664 firm-year observations from 193 firms during the 1999-2009 periods. The authors employ a panel least square regression with both period and industry fixed effects. The authors retrieved of analyst data from the Institutional Broker Estimate System (I/B/E/S) database while the authors hand collected the corporate governance variables. The remaining data were collected from Compustat Global. Findings – The authors find a positive relationship between the proxy of culture, Bumiputra directors and analysts forecast error suggesting that cultural values influences the level of information in the Malaysian capital market. Research limitations/implications – The research is dependent on the data availability from I/B/E/S database. Originality/value – The authors extend the work of Haniffa and Cooke (2002) in investigating how cultural values influence the capital market. In addition, this is the first study that investigates culture values and the analysts forecast.

Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa

2020 ◽  
Vol 36 (4) ◽  
pp. 303-321 ◽  
Author(s):  
Kofi Korle ◽  
Anthony Amoah ◽  
George Hughes ◽  
Paragon Pomeyie ◽  
Godson Ahiabor
Keyword(s):  
Property Rights ◽  
Human Development ◽  
Fixed Effects ◽  
Economic Freedom ◽  
Ordinary Least Squares ◽  
Series Data ◽  
African Countries ◽  
Content Type ◽  
Absorptive Capacities

PurposeThe purpose of the study is to investigate the role of disaggregated economic freedom measures in the foreign direct investment (FDI) and human development nexus.Design/methodology/approachThe study uses a panel data of 32 selected African countries from 1996 to 2017. A dynamic ordinary least squares (DOLS) with fixed effects and instrumental variable (IV) econometric techniques was used to address issues of endogeneity and serial correlation commonly associated with panel time series data.FindingsThe Results indicate that FDI without accounting for absorptive factors has a positive but insignificant effect on human development for the selected African countries. However, FDI has a positive and significant effect on human development when interacted with measures of economic freedom such as investment freedom, business freedom and financial freedom. In contrast, yet plausible, FDI has a negative influence when interacted with property rights, trade freedom, government integrity and tax burden.Practical implicationsThe study posits that to attract FDI into Africa with the purpose of improving human development, relevant absorptive capacities such as business, investment and financial freedom environment are critical. However, excessive capital flight and government interference through taxation and abuse of property rights should be controlled if the continent seeks to promote human development through FDI.Originality/valueThe novelty and originality of the study, are evident in the use of disaggregated measures of economic freedom as comprehensive absorptive capacities to examine how they complement FDI to impact on human development in Africa.

Economic policy uncertainty, R&D expenditures and innovation outputs

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Reza Tajaddini ◽  
Hassan F. Gholipour
Keyword(s):  
Economic Policy ◽  
Fixed Effects ◽  
The United States ◽  
Policy Uncertainty ◽  
Economic Activities ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The United Kingdom ◽  
Per Capita ◽  
The Relationship

PurposeThe purpose of this study is to examine the relationship between the news-based economic policy uncertainty (EPU), research and development (R&D) expenditures per capita and innovation outputs.Design/methodology/approachData from 1996 to 2015 for 19 countries (Australia, Brazil, Canada, Chile, China, France, Germany, India, Ireland, Italy, Japan, Netherlands, Russia, Singapore, South Korea, Spain, Sweden, the United Kingdom and the United States) are used. The authors apply country and year fixed-effects models for the estimations.FindingsThe study findings show that higher levels of EPU are positively associated with higher R&D expenditures per capita as well as innovation outputs (patent applications, patent grants and trademark applications).Practical implicationsThis study deepens our understanding on the policy uncertainty–economic activities nexus and expands the literature on uncertainty, which is still at an initial phase of development, leading to generate a variety of open research questions for further investigation and study (Bloom, 2014).Originality/valueThere has not been an empirical investigation on the links between EPU and R&D expenditures and innovation outputs across several countries. The authors address this gap in the literature.

Potential negative effects of a cashless society

2019 ◽  
Vol 22 (2) ◽  
pp. 350-358
Author(s):  
Joseph Wilfrido Rivera
Keyword(s):  
Economic Policy ◽  
Policy Change ◽  
Organized Crime ◽  
Potential Effect ◽  
Economic Policies ◽  
Negative Consequences ◽  
Negative Effects ◽  
Content Type ◽  
The Subject ◽  
Conceptual Paper

Purpose In the past few years, several countries have begun to drastically change their economies to be entirely cash free. The point of this policy change is to hopefully prevent the amount of crime that results from the proliferation of cash. However, there are potential negative consequences to this policy change that receive little to no attention and there are several misconceptions regarding the opportunistic nature and resourcefulness of organized crime. As such, this paper aims to attempt to study these potentially negative consequences to provide some warning to countries adopting a cashless economic policy. Design/methodology/approach This is a conceptual paper relying upon an understanding of the literature in the fields of sociology, anthropology, psychology and criminology as applied to the topic of money and economic policy. Findings This paper discusses numerous negative effects to adopting a cashless economic policy, to include the proliferation of underground financing through the hawala system and organized criminal channels, the increased use of Bitcoin, the more difficult task of tracking currency through bank reporting requirements, and the potential effect of increasing other crimes, which are harder to track. Research limitations/implications This is an entirely conceptual paper. As such, it is not able to state definitively whether the outcomes discussed will occur or to what extent it may occur. Practical implications This paper could help to serve as a warning for governments wishing to adopt a cashless economic policy, and it may encourage those countries to hopefully develop safeguards to prevent some of the potentially negative effects that might result. Social implications This paper expands upon the understanding of money and the various ways that individuals may adapt or react culturally, psychologically or violently to changes in monetary policy or the form of currency itself. Originality/value There have been few if any paper discussing the consequences of cashless economic policies and its implications toward organized crime. This paper is unique in both the subject matter being discussed and the conceptual arguments it puts forth.

Economic policy uncertainty, market returns and expected return predictability

2017 ◽  
Vol 9 (3) ◽  
pp. 242-259 ◽  
Author(s):  
Frederick A. Adjei ◽  
Mavis Adjei
Keyword(s):  
Economic Policy ◽  
Predictive Power ◽  
Negative Impact ◽  
Future Market ◽  
Policy Uncertainty ◽  
Market Returns ◽  
Expected Return ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
The Impact

Purpose Using the economic policy uncertainty (EPU) index as a proxy for the level of EPU, we study the impact of the level of EPU on the conditional mean of market returns and we examine the predictive power of EPU on future market returns. Design/methodology/approach We employ a GARCH-in-Mean model with exogenous variables. Findings The results show that even after controlling for business cycle effects, EPU is inversely related to contemporaneous market returns. Particularly, the authors find that the negative impact of EPU subsists only during recessions or recessionary states of the economy, and has no discernible effects during expansionary periods. Originality/value This is the first study to examine the predictive power of EPU on future market returns.

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